TSP In-Plan Roth Conversion: The 2026 Guide for Federal Employees

On January 28, 2026, the Thrift Savings Plan launched in-plan Roth conversions — allowing federal employees and retirees to convert traditional TSP balances to Roth TSP without leaving the plan. This changes the retirement tax planning calculus for millions of federal workers. Here's what it means for your situation.

What a TSP in-plan Roth conversion is

An in-plan Roth conversion moves money from your traditional (pre-tax) TSP balance to your Roth (after-tax) TSP balance — all within the TSP, without leaving the plan. You pay ordinary income tax on the converted amount in the year of conversion. After that, the converted amount and all future earnings on it grow tax-free.

Before January 28, 2026, TSP offered no such feature. The only way to do a "Roth conversion" from TSP was to:

1. Separate from federal service (or take an in-service withdrawal at age 59½).
2. Roll the traditional TSP balance to a traditional IRA.
3. Convert the traditional IRA to Roth IRA — triggering income tax that year.

That multi-step path still exists and is useful in some cases. But for many federal employees, the new in-plan conversion is simpler and avoids the need to leave TSP's ultra-low expense ratios (~0.055%) and access to the unique G Fund.

The mechanics: how it works

• Minimum conversion: $500 per non-Roth source (traditional pre-tax and tax-exempt balances each have a $500 floor).
• Maximum per year: 26 conversions per calendar year.
• Tax treatment: The full converted amount is added to your ordinary income in the year of conversion. There is no special capital gains rate — it's taxed like any other income.
• Paying the tax bill: You must pay taxes from personal funds outside your TSP. The TSP does not allow withholding from the conversion amount itself — taking money out of TSP to pay the taxes would be a distribution, not a conversion.
• Irrevocable: Unlike Roth IRA recharacterizations (which were eliminated in 2018 anyway), TSP in-plan conversions cannot be undone. Once converted, the amount is Roth permanently.
• Pro-rata rule for military: If your traditional TSP balance includes both pre-tax contributions and tax-exempt combat zone contributions, any conversion must come from both sources proportionally — you cannot selectively convert only the tax-exempt portion.²

The 5-year rule: when converted funds become tax-free

Roth TSP has a single 5-year clock — different from Roth IRAs, which track each conversion separately. The TSP's 5-year clock starts on January 1 of the first year you made any Roth TSP contribution or conversion. Once that clock has run 5 tax years AND you are age 59½, withdrawals of Roth earnings are fully tax-free.¹

What this means in practice:

• If you first contributed to Roth TSP in 2021, your 5-year clock completed at the end of 2025. Earnings withdrawals starting in 2026 are qualified — fully tax-free — assuming you're also 59½.
• If you make your first Roth TSP contribution or conversion in 2026, earnings don't become tax-free until 2031 at the earliest (and only if you're 59½ then).
• The contributions themselves (your own basis) can always be withdrawn tax-free — the 5-year rule only applies to earnings.
• After separation from federal service, the 5-year clock continues to run if you leave balances in TSP.

Who should consider converting — 4 FERS scenarios

1. FERS retirees in the supplement gap

The most powerful conversion window for FERS employees is the period between retirement and Social Security collection. A GS-13 employee who retires at 57 with a $48,000 FERS annuity, no SS income yet, and a $1.1M traditional TSP might have no Medicare for 8 years (until 65) and no SS for 5–10 years (until 62–67). That gap is the sweet spot.

Worked example:

• FERS annuity: $48,000/year
• Standard deduction (2026, single): $16,100
• Taxable income from annuity: $31,900 (fully in the 12% bracket, which ends at $50,400)³
• Room to fill the 22% bracket top ($105,700 taxable): $105,700 − $31,900 = $73,800 of conversion space at 22%
• Converting $73,800/year for 8 years moves ~$590,000 from traditional to Roth at a 22% marginal rate
• Once SS starts, the SS provisional income calculation pushes more of the traditional TSP withdrawals into higher brackets — so the window is genuinely more valuable than it looks

The key: no IRMAA exposure during the first 8 years because Medicare hasn't started yet. IRMAA only applies once you're on Medicare (age 65). A 2026 conversion affects your 2028 Medicare premiums — which don't exist if you won't turn 65 until 2034.

2. High-balance traditional TSP facing large RMDs

SECURE 2.0 § 325 eliminated Roth TSP lifetime RMDs starting in 2024. But your traditional TSP balance still requires minimum distributions beginning at age 73 (birth year 1951–1959) or 75 (birth year 1960+). A $1.5M traditional TSP at age 73 requires approximately $55,000 in withdrawals in year one — stacking on top of pension and SS income.

Converting $50,000–$100,000/year from traditional to Roth TSP in your late 50s and early 60s (before Medicare and before SS) reduces the eventual traditional balance and thus reduces forced RMD income in your 70s. This is a decade-long tax arbitrage play.

3. Employees expecting higher taxes in retirement

Many federal employees underestimate their retirement tax rate. A GS-15 or Senior Executive Service employee who retires with a $95,000 FERS annuity, significant Social Security, and TSP withdrawals can easily land in the 22%–24% bracket in retirement — similar to or higher than their working-year rate. For these employees, Roth contributions and conversions are genuinely beneficial even without the FERS supplement window.

4. Military with combat zone tax-exempt (CZTE) contributions

Service members who contributed to traditional TSP from combat zone tax-exempt pay have a unique situation: those contributions went in tax-free. Converting them to Roth TSP requires including the pre-tax and tax-exempt amounts proportionally (pro-rata rule). However, once converted, the former CZTE amounts grow and distribute completely tax-free in Roth — producing a triple tax benefit: tax-exempt contribution, tax-free growth, tax-free withdrawal. The pro-rata requirement is a constraint, not a barrier, for those with mostly tax-exempt balances.

Who should not convert — 3 traps

Trap 1: The IRMAA lookback

Medicare uses a two-year lookback — your 2026 Medicare Part B premium is based on your 2024 tax return income. A large Roth conversion in 2026 (say, $80,000) won't affect your 2026 or 2027 Medicare premiums. But it will increase your 2028 premiums if the added income pushes your 2026 MAGI over the IRMAA threshold.

2026 IRMAA thresholds:⁴

• Single filers: first IRMAA tier kicks in above $109,000 MAGI
• Married filing jointly: first tier above $218,000 MAGI
• At the first tier, Part B premiums increase from $202.90 to $284.10/month — an extra $81.20/month per person, or ~$974/year

Example of the trap: A federal retiree (age 64, married) has $42,000 FERS pension, $20,000 SS (85% = $17,000 includible), $20,000 TSP installments. MAGI ≈ $79,000 — safely below $218,000. He converts $150,000 from traditional TSP to Roth. 2026 MAGI rises to $229,000. This pushes him above the first IRMAA tier. In 2028, both he and his wife pay $284.10 instead of $202.90 for Part B — an extra $1,948/year. And at his age, he'll also be on Medicare for two years while the IRMAA bump persists. A $3,900 IRMAA cost should be weighed against the expected tax savings from the conversion.

The fix: size conversions to stay $3,000–$5,000 below the IRMAA cliff. An advisor who models this saves clients the "surprise" IRMAA bill two years later.

Trap 2: Converting in a high-bracket year

In-plan Roth conversions add ordinary income. If you convert $60,000 in a year when you still have a full federal salary, that $60,000 stacks on top of $130,000+ in wages — pushing you into the 24% or 32% bracket. Converting in high-income working years at 24–32% and withdrawing in retirement at 22% is the wrong direction. Wait for a lower-income year: separation, the FERS supplement gap, or any year your income drops.

Trap 3: Converting funds you'll need within 5 years

Converted amounts are locked under the 5-year rule if you're under 59½. If you're 56 and plan to use the converted funds at 58, withdrawing within 3 years of conversion means the earnings aren't yet "qualified." (You can always withdraw your contributions tax-free, but earnings will be taxed and potentially penalized if the 5-year clock hasn't completed.) Only convert amounts you're confident won't be needed for at least 5 years, or until 59½, whichever is later if you're currently under 54.

Sizing the conversion: the fill-the-bracket strategy

The optimal annual conversion amount is the amount that fills your current tax bracket without spilling into the next — or fills to just below the nearest IRMAA cliff.

Step-by-step sizing (single filer, FERS retiree, age 60):

1. Estimate base income: FERS annuity ($42,000) + FERS supplement ($15,000) = $57,000 gross
2. Subtract standard deduction ($16,100): taxable income ≈ $40,900
3. Identify bracket ceiling: 12% tops at $50,400 taxable → $9,500 of conversion space at 12%
4. Next ceiling: 22% tops at $105,700 → $64,800 of additional conversion space at 22%
5. Add IRMAA check: single-filer IRMAA starts at $109,000 gross. With $57,000 base income + conversion, MAGI = $57,000 + conversion. To stay under $109,000 IRMAA: convert at most $52,000
6. Result: convert $52,000 (fills the 22% bracket, stays below IRMAA cliff), paying 12% on the first $9,500 and 22% on the remaining $42,500

Do this annually during the FERS supplement gap, adjusting each year as the FERS supplement phases out at 62 and SS begins. A fee-only advisor models this as a multi-year projection.

TSP in-plan vs. roll-to-IRA-then-convert: when each makes sense

For most FERS retirees who want to keep G Fund access and aren't yet 59½ (Rule of 55 users), the in-plan conversion is preferable. For those who've already rolled to an IRA and want broader fund choices, the IRA conversion path remains valid.

How to execute a TSP in-plan Roth conversion

1. Log in to My Account at tsp.gov.
2. Navigate to Transfers and Rollovers → In-Plan Roth Conversion.
3. Choose the dollar amount to convert (minimum $500; must leave at least $500 in each traditional source after the conversion).
4. Review the tax estimate. TSP will show you an estimate of the tax impact — but the TSP strongly recommends consulting a tax advisor before proceeding.
5. Confirm. The conversion is irrevocable once submitted.
6. TSP does not withhold taxes from the conversion. Set aside funds separately (e.g., increase estimated quarterly tax payments or adjust withholding) to cover the tax bill.

Decision framework

Sources

1. TSP.gov — Roth In-Plan Conversions. Feature launched January 28, 2026. Key mechanics: $500 minimum, 26 conversions/year limit, irrevocable, single 5-year clock. Authoritative source for all TSP in-plan conversion rules.
2. Federal Register — Roth In-Plan Conversions (Final Rule, Jan 15, 2026). Confirms conversions apply to both pre-tax and tax-exempt (CZTE) traditional balances proportionally (pro-rata). Effective January 28, 2026.
3. IRS Rev. Proc. 2025-32. 2026 tax brackets: 12% bracket up to $50,400 taxable income (single); 22% bracket $50,401–$105,700 (single). Standard deduction: $16,100 (single), $32,200 (MFJ). Values verified for 2026.
4. CMS.gov — 2026 Medicare Part B Premium and IRMAA Thresholds. Base Part B premium: $202.90/month. First IRMAA tier (single): MAGI above $109,000; (MFJ): MAGI above $218,000. Part B surcharge at first tier: $284.10/month. Two-year lookback applies.
5. TSP.gov — SECURE 2.0 and the TSP. § 325: Roth TSP excluded from RMD calculation effective 2024. § 603: mandatory Roth catch-up contributions for participants with prior-year wages above $150,000, effective January 1, 2026.

TSP in-plan Roth conversion rules verified against TSP.gov and the Federal Register (January 2026). Tax brackets and IRMAA thresholds verified against IRS Rev. Proc. 2025-32 and CMS.gov as of May 2026. Tax law can change; consult a tax professional before converting.